Cisco Systems, Inc. (CSCO) on Q3 2021 Results - Earnings Call Transcript

Operator: Welcome to Cisco's Third Quarter Fiscal Year 2021 Financial Results Conference Call. At the request of Cisco, today's conference is being recorded. If you have any objections, you may disconnect. Now, I would like to introduce Marilyn Mora, Head of Investor Relations. Ma'am, you may begin. Marilyn Mora: Welcome, everyone, to Cisco's third quarter fiscal 2021 quarterly earnings call. This is Marilyn Mora, Head of Investor Relations, and I'm joined by Chuck Robbins, our Chairman and CEO; and Scott Herren, our CFO. Chuck Robbins: Thanks, Marilyn. Good afternoon and thanks for joining today. I hope everyone is staying healthy and safe as we start to see the benefits of vaccine deployments and the continuing improvement in economic activity. I want to start by acknowledging our employees, customers and partners in India who are experiencing a devastating surge of COVID cases. Cisco is providing critical resources during this challenging time, and our thoughts remain with all of you. While many of us are seeing great progress in our recovery efforts, we must remain vigilant and adaptable as we manage the ongoing pandemic around the world. Turning to the quarter, we had impressive momentum in Q3, which gives me a great sense of optimism going forward. We returned to growth, with revenue up 7%, driven by an improving macro environment, the strongest product portfolio in our history and great execution by our teams. We saw broad-based demand across the business, led by our biggest growth opportunities: hybrid work, digital transformation, cloud and continued strong uptake of our subscription-based offerings. We are also seeing early momentum in the ramping of key technology cycles that are long-term growth drivers for our business, such as 5G, 400 gig and Edge. Scott Herren: Thanks, Chuck. Last quarter I identified four key priorities that we are using to define our financial strategy: driving profitable growth, a continued disciplined focus on financial management and operating efficiency, setting a long-term plan to maximize value creation through strategic transformation and examining investments, both organic and inorganic. We made progress on all these fronts in Q3 and are continuing to build our financial approach based on these core pillars, providing a strong foundation for enhanced financial performance as well as long-term value creation for our shareholders. Now, let's turn to our results. I'll start with a summary of our financial results for the quarter followed by the guidance for Q4. As Chuck said, Q3 was a strong quarter, across the business. We executed well, with strong product orders and solid growth in revenue, net income and earnings per share. Total revenue increased to $12.8 billion up 7% year-on-year, exceeding the high end of our guidance range for the quarter. We saw broad strength in all product areas and geographies. We also saw continued recovery in our business and building momentum was sequential revenue growth of 7%. Our non-GAAP operating margin was 33.6%. Marilyn Mora: Thanks, Scott. Michelle, let's go ahead and begin the Q&A. Operator: Thank you. Rod Hall from Goldman Sachs, you may go ahead. Rod Hall: Yes, guys, thanks for the question. I wanted to start off I guess with the margin guidance. And that's the thing most people are asking me about. And I heard, Scott, I heard you talking about the impact from increased costs. I guess maybe could you give us some more color on how sustainable those impacts are and also address the OpEx line? it looks like those costs are inflated too, I assume, for some of the same reasons. But just the sustainability of these cost pressures and these kinds of margins you're guiding for, as we look forward. Thanks. Scott Herren: Yes. Thanks, Rod. On starting with the gross margin, the impact you're seeing in the Q4 guide on gross margin is really driven by supply chain. It has a couple of elements to it. One is unit cost. So we've got and actually it was announced today from Gartner, we've got the number one supply chain team in the world, two years in a row. And that team has done a great job getting ahead of the issues that everyone in the industry is seeing. So with that, though, we've locked in both supply and pricing with some of the key component providers that we've got going ahead. That's what you see built into the margin guide and I think the supply chain issues will stay with us from what I can see at least through the end of this calendar year. On the OpEx side, it's a little bit different. When you look at the -- we're right on track, let me just start by saying, before you ask, we're right on track with the savings associated with the restructuring that we announced earlier this year, earlier this fiscal year. We said at the time we would reinvest some of that into the growth of the business overall, and that's what you see happening. So when you look at the year-on-year growth in OpEx, it's driven by the integration of the acquisitions that closed during the quarter, a little bit of a headwind from FX as the dollar has weakened and then the higher commissions given the robust strength of the top line. Commissions are up and reset at a variable comp plans. But that's what's driving it and I think the sustainability, to get to your point, is I expect to see some of these supply chain issues linger with us through the end of the calendar year, first half of our fiscal year. Chuck Robbins: Yes. Hey, Rod, this is Chuck. I just want to add a little color to that. And as we began to realize that we were going to have the incremental costs, we had to make some decisions, and I think obviously, we do believe these are temporary. We'll have to see how long they last, but based on that and based on the fact that we are seeing such momentum in the business right now, we decided to continue to invest in the business to drive the growth that we are feeling right now. And when you see the balance of the growth across all the businesses, you see the regional balance it was balanced across the technology areas. It was balanced across segments. And then, you think about that in the context of some of these real major trends that are occurring that we're on the front end of, like the 400 gig transition, like the success we're having in Webscale, the Service Provider 5G build-out, the hybrid work and return to office, we talked about Wi-Fi 6 leading to campus switching, which we're seeing play out now and the Security business had a record quarter at a time where most every customer is suggesting that they're going to be spending more over the next 12 months in cybersecurity. So, we feel like it was prudent to continue to invest to meet the demand and deal with some of the short-term pain and then we think we'll get to the other side of it. Rod Hall: Great, okay. Thanks a lot, appreciate it. Scott Herren: Thanks, Rod. Marilyn Mora: Thanks, Rod. Next question, please? Operator: Samik Chatterjee from J.P. Morgan, you may go ahead. Samik Chatterjee: Hi. Thanks for taking my question. Chuck, I guess, somewhat following up on Rod's question here, I think the macro expectation is that we will be going through a period of higher inflation and you're seeing that somewhat in the supply chain but also in other aspects as well. Can you just help us think through what are the levels that the company has as you navigate through that? And particularly, how are you trying to balance that against the raise that some of the customers might be pulling ahead orders or pulling ahead demand just to secure product from you? Chuck Robbins: Yes, a couple great questions. Number one, what we do know is that if we come to the conclusion that any of these cost increases or this inflation as you mentioned are going to be more sustained then we will look at strategic price increases where we have to. And that work's already underway. There's already some decisions that we've made, so we will do that. It's a pretty dynamic situation as you know. And then on the pull-ahead, this is a question that we've been asked. And while it's impossible to really quantify what that might be, it's going to be pretty obvious that if a customer has extended lead times, they're probably going to place orders sooner than they would. That just makes sense. But we also have proxies that we would be looking for to really reflect that being a major issue like order cancellations if they're placing these orders against multiple channels and then canceling when they get it out of one channel. We don't see that. You would see more of that pull-ahead from the Enterprise and obviously Commercial and Small Business, you probably wouldn't see as much and those were pretty significant growth engines for us this past quarter. So we don't see any glaring red flags, although we would certainly agree that there's probably some level of early ordering going on. Samik Chatterjee: Okay, thank you. Marilyn Mora: Thanks, Chuck. Next question? Operator: Meta Marshall from Morgan Stanley, you may go ahead. Meta Marshall: Great, thanks. Appreciate the question. Where do you think customers are on return to work planning? Are your larger customers may be further along than smaller customers or vice versa? And then just what are you seeing from some of the spending from the impacted industries from last year? Thanks. Chuck Robbins: Great question. So, first of all, I think it's the inverse. I think we're seeing the Small Businesses and the Commercial customers moving a little faster, although we saw Enterprise pick up in Asia and in Europe, and we've done a deep analysis with our team. The U.S. improved, and we would expect next quarter and then next fiscal year for U.S. Enterprise to actually improve significantly from where we are today. And I think on the industry front, we were doing the review in the U.S. and we've actually seen double-digit growth in hospitality, in healthcare, in retail. And we've even seen the cruise lines making significant purchases as they prepare to go back out. So, we think that that is definitely a sign that we're on the road to recovery. And I would say that the other thing I would highlight is, as our customers think about hybrid work and they think about the return to office, we've talked about the prevalence of Wi-Fi 6 we saw continued strength in Wi-Fi. And we said once that begins to happen, that we believe there would be a campus switching upgrade follow and the CAT 9K has had four quarters of increasing growth in double digits the last few quarters from a demand perspective, so we've seen that happen as well. So, I think that -- overall, I think it's happening as we thought it would and perhaps even at an accelerated pace. Meta Marshall: Great, thank you. Marilyn Mora: Thanks, Meta. Next question, please? Operator: Tal Liani from Bank of America, you may go ahead. Tal Liani: Hi, guys. I have two questions, related and not related. First question is the pricing environment. We see price increases across the board. We see component shortages. Does it impact pricing of your products? And is there any plan or have you already adjusted prices for that? That's number one. The second one, I'm trying to understand the year-over-year trends in the context of easy comps versus real growth. And I know it's hard to say, but it's hard to quantify, but can you at least qualitatively speak about the fact of when you grow 7% and we deduct the acquisition impact, etcetera, what's the impact of the environment really improving in your comments versus just easy comps because last year was so weak because of COVID? Thanks. Chuck Robbins: Yes, Tal, it's great. I'll comment on the first one, I'll comment on both of them and then Scott can add on to it. So on the pricing front, as I said a few minutes ago, I think we have made some decisions on certain products that we will be making price increases on, and we're looking surgically at the rest of the portfolio based on where we have costs that we believe are going to be sustained. But you know, we're erring hard right now on taking care of our customers and trying to optimize our ability to deliver to them right now because we think that improves our relationships and it improves our position over the long term with these customers; so that's what we're doing. On the year-over-year trends, I think that what I would point to is the real thing that I think is substantive is the demand side of what we've seen, and -- because you're right. You can do some math that gets at the revenue in Q3, but I think that based on what we see and the demand that we see, we do believe this is certainly, it's a positively evolving marketplace for us and I think the work we've done over the last year, we pivoted our strategy a year ago based on what we thought would happen post-pandemic. The teams have been executing really hard, and it's great to see the customers embracing the solutions that we're delivering out there; so we feel like it's sustainable. Scott Herren: Yes. I think, Tal, when you look at the year-on-year, I think the context you need to put around that is the improving trend that we've seen. We've seen four to five now consecutive quarters of quarter-on-quarter improvement, and really, the improvements across-the-board. It's in each geo, and it's in each product line. So we're seeing continued improvement and that, obviously, bodes well for looking out at Q4 and into the future. I think the other thing that we've talked about the robust demand that we've had and you see the revenue that we printed in Q3. What you didn't see is we also built up a healthy backlog at this point. And so I think that coming into Q4, not only do we have a very high percentage of recurring revenue as, that we know will come into the revenue stream during Q4. We've got a sizable backlog at this point, of orders to fulfill, and we know exactly what's in the pipeline. So, really feel good about the sequential trend that we're seeing across the business. Chuck Robbins: Yes. I think, Tal, it's a really good point that Scott makes. There is a revenue headwind that we're facing based on the supply chain, so notwithstanding what's going on in the supply chain, our revenue guide would have been higher, which could have probably flowed through to improving EPS as well. So it's a complicated thing that we're navigating through right now. But notwithstanding that it's the best I've felt about the business and our momentum and where we are in quite a while. Tal Liani: Great, thank you. Marilyn Mora: Next question, please? Operator: Ittai Kidron from Oppenheimer, you may go ahead sir. Ittai Kidron: Oh, thanks, a couple questions for me. Chuck, I do want to follow up again on the demand side. I'm trying to gauge how much of what you're seeing right now is things that were delayed during COVID that are being fulfilled now versus acceleration of future plans into now. I'm just trying to think of sort of what is a normalized demand pattern for you once the noise of COVID, for worse last year and for better right now, kind of goes away. Maybe you can help us think about that. And then for Scott on the growth guidance for next quarter, can you call out specifically the impact of the acquisitions? What is the growth guidance without Acacia, IMI, Dashbase and Slido that you just closed on? Chuck Robbins: Yes, Ittai. Thanks. So, I'll try to do what you -- I'll try to answer what you asked, but I think it's a difficult one to really be definitive about, but I think there's a couple of aspects going on. I certainly believe there are projects that customers put on hold that they're now accelerating now that they have better visibility into what the return looks like. I definitely think that's happening. I also think your second point is happening. I think that they're, every customer is looking at modernizing their infrastructure because no one wants to be caught flat-footed by the next crisis, and everyone has realized the power of technology during this time frame and so I think there's an element of increased investments that we'll see across all the technology areas as well as obviously cybersecurity, etcetera. But the other thing I think that's really important is that we've been investing for a long time against a lot of these big market transitions that are starting to come to life. You remember, Ittai, we didn't play in the Webscale space five years ago. We didn't play. And now, we're seeing that was almost a quarter of our Service Provider business again this quarter, and it's still growing robustly. I mean, it grew over 25% this quarter against a quarter a year ago that was in excess of 70% growth, so it's still accelerating. And then, you've got 5G that's starting to play out the way, as we've all been waiting for it to play out. You've got this return to office and hybrid work with Wi-Fi 6 and the campus upgrades that we've talked about. And you've got this cybersecurity concern that is only exacerbated by everything we see in the press by all the continuing attacks and at a time where we had record revenues. So, I think all of those things are playing into it, and that's what leads us to feel pretty good about where we are right now. Scott Herren: And Ittai, on your second question about the impact of acquisitions. We said in the opening commentary that for Q3, it was about 90 basis points of growth, and that was not part of our Q3 guide. They each closed during the quarter so we look ahead at Q4 of the revenue growth that we've let out there, about a point and a half is driven by the acquisitions, mostly driven by Acacia. Chuck Robbins: Two other things, Ittai, on that particular question that I wanted to point out if you don't mind. The first is we see a revenue headwind from the supply chain issue in Q4. As I said earlier, if we didn't have the supply chain challenges, we would have been guiding higher on revenue, which is reflected what Scott mentioned about the backlog coming into the quarter. The second thing is this business transformation that we have been working on for the last five or six years, if we go back to the first quarter I was CEO and then we look at the quarter that we're entering into, the recurring revenue that we're pulling off the balance sheet that we have visibility to today that will be part of Q4 revenue is up 64% during that time frame. So we have a lot more visibility, and it just says that the whole rationale for why we've been driving this business model transformation, which is a big complex change to get to, but that has helped us in a big way in allowing us to actually deliver the revenue we're talking about next quarter. So, the benefits that we believe were there for the business model, I think this is probably the quarter where we're feeling the positive impact of that more than any other quarter. Ittai Kidron: That's great, thanks. Appreciate it. Chuck Robbins: Thanks, Ittai. Marilyn Mora: Thanks, Ittai. Next question, please? Operator: Simon Leopold from Raymond James, you may go ahead. Simon Leopold: Thank you. Appreciate it. Marilyn Mora: Simon? Sounds like we lost you. Chuck Robbins: We lost you, Simon. Marilyn Mora: Are you there, Simon? Operator: We'll go to the next question. Amit Daryanani from Evercore, you may go ahead. Amit Daryanani: Perfect. Thanks for taking my question. I have a question and a follow-up. Just when I think about your guide and the gross margin drop of 150 basis points, I'm curious would you attribute the entire drop due to supply chain issues or is there anything else at play as well? That's one. And then second question was really hoping you could unpack the Service Provider growth which sort of accelerated a fair amount as we just talk about the trends you're seeing in the traditional Service Provider versus the Webscale business and where that acceleration is coming from would be helpful. Thank you. Chuck Robbins: Scott, you want to take the gross margin? Scott Herren: Yes, I will. It is driven by supply chain and it comes in a couple of flavors. Having done the work that we've done to protect shipment to our customers, there are unit price increases, unit cost increases on certain components that's built into it. There's also increased expedite fees, again to ensure that we get the components in and we can get the product back out the door and a slight increase in freight. So it really is all tied to supply chain. Chuck Robbins: And then, Amit, on the Service Provider growth, I'm glad you asked the question because I should have pointed it out. We saw double-digit growth across all of the sub-segments of Service Provider, so Cable, Carrier as well as Webscale. So it was very balanced across the three and it's not one segment carrying it, which is why, another reason that we're optimistic. The demand side we saw was so consistent across all our customers and so consistent across geographies and so consistent across the product portfolio, but in the ESP space it was double-digit across all of those segments. Marilyn Mora: Next question, please? Operator: Simon Leopold from Raymond James, you may go ahead. Simon Leopold: Sorry about that. Can you hear me now? Chuck Robbins: Yes, we can. Simon Leopold: My AirPods decided they wanted to stop working. Sorry about that. So, I was looking to see if maybe you could help bridge the gross margin headwinds in terms of the supply chain in that we know there are multiple aspects. It's not just the chip shortages, but things like air freight and then having to add maybe extra hours and paying overtime when things come later because of the shortages. So if there was some way to maybe bridge the components that would help us understand how the recovery might manifest itself. Thanks. Chuck Robbins: Yes, Simon. When your AirPods went out, Amit was on the same wavelength as you and asked the exact same question. So I'll give the same answer. It really is kind of two or three aspects that are driving it, all related to supply chain. Unit costs are up and that's based on the work that our supply chain team has dong to ensure that we get supply and so that such we can deliver for our customers the gear they need to get from us. They've all got significant transformation underway as well within their shops to support the new hybrid work environment, and so we're working as hard as we can to make sure we can deliver the product to them. But unit costs are slightly higher and that's semis, that's memory and it's certain other smaller commodities across the board. The second is, freight costs are higher, and as freight costs go up, obviously that hits gross margin. And then finally, expedite fees as we're getting product in the door. So, it's all tied to various elements of supply chain. Marilyn Mora: Thanks, Simon. Simon Leopold: Appreciate it. Sorry you had to repeat yourself. Chuck Robbins: No problem, that's okay. That's all right. Marilyn Mora: All right. Michelle, queue us up with the next question. Operator: Thank you. Pierre Ferragu from New Street Research, you may go ahead. Pierre Ferragu: Hey, guys, thank you for taking my question. I have two. A quick follow-up after that, if I may. The first one, so if I look at your software revenue sequentially, it went from $3.6 billion to $3.8 billion. So that's rounded number, but it suggests you have like a kind of mid-single-digit sequential growth in software, which is very exciting. Is that the kind of right run-rate level of growth we should expect for your software business? And then, Scott, just to confirm, given that move in mix, in revenue mix and product offering, in a situation in which the supply chain were not disrupted, we could have expected some tiny sequential improvement in gross margins, right? Scott Herren: Yes, that's right. Mix is definitely, as we continue to add more recurring revenue particularly around software, as you pointed out, but also our tech support services, those are higher gross margins. Those long term will be a tailwind to our gross margins. The supply chain issues obviously more than offset that. In terms of your question on software growth, the numbers that you're using are a little bit rounded, but you're on the right tread. We're seeing nice growth in software and in fact, mentioned that 81% now of that is driven by subscription and recurring revenue, so a 7-point improvement in the amount of that software revenue that's recurring. That is great news longer-term as you know, with recurring revenue particularly when it's ratable you see less of the impact upfront. So there's a bit of a bow wave, and you see it in the growth of our RPOs and the growth of our deferred revenue on product so each of those are growing. That's also a sign of the growth within our software product set. When you just do the quick math, right, we're now one of the biggest software companies in the world, right, north of $14 billion in software revenue. And I don't think anyone thinks of Cisco in those terms. Pierre Ferragu: Thanks. And a quick follow-up for you, Chuck, if I may. You have in your press release you're talking about the next uptake of your subscription base offering. So could you give us a sense of it almost sounds like you feel you are on an inflection point or on a turning point on that front. Are you expanding your portfolio in terms of software like subscription base offering at the moment? Or are you expecting the uptake of these products to reaccelerate on the back of the pandemic? What did you mean exactly? Chuck Robbins: Yes, so, Pierre, I think there's a couple things going on. Number one we have seen just over the last few years continued acceleration in our software business. Every acquisition we do, that's the business model. So from that perspective it comes in. From an organic perspective, we're building more software assets. We're delivering more Software Solutions. And then we're actually looking now, we announced Cisco Plus at Cisco Live, which is how do we deliver virtually anything we build as a service should our customers want to consume it that way. So we're just embarking on that, which is another big part of our portfolio, which will create more recurring revenue for the future, so that's what I'm talking about. Pierre Ferragu: Okay, that makes sense. Thank you very much. Marilyn Mora: Thanks, Pierre. Next question? Operator: Paul Silverstein from Cowen, you may go ahead. Paul Silverstein: Appreciate you taking the questions. Two quick questions. One, Chuck, I think it's been a long time since you all have disclosed what the size of your various customer segments and given the impact or what I would expect would be the impact of U.S. Federal stimulus, what's going on Service Provider, Enterprise, the different trends, can update us on how big those sectors are including U.S. Federal? And then the other question would be your Services business. You had a great quarter. It was extremely strong, up 8%. Is that -- is there a one-off in that or is that indicative up from what it had been low single-digit growth? It was a very prominent number. Any insight you can share on what we should expect going forward and what's driving it? Chuck Robbins: Yes, Paul, I don't have the percentage. We haven't given that information out on the percentage of segments for a while. I would say if we could couch that until perhaps September when we do our Analyst Meeting unless you have. Scott Herren: No, the only thing I would add is when you compare us to some of our peers where we break out Enterprise versus Commercial many of them combine those two together. Chuck Robbins: Most of them do. Scott Herren: Yes. So just bear that in mind as you're trying to compare us across the board. Paul Silverstein: Scott, I am aware, but if I may, obviously, with the magnitude of the U.S. Federal stimulus that's already been passed and the various additional progress that's been proposed, not only will that impact the public sector but it also would impact Enterprise, not just for you but for a lot of folks. It would be great if you updated us at some point with those numbers. Scott Herren: Yes, that makes sense. I get it. Chuck Robbins: And what was the second question, Paul? Marilyn Mora: The services growth. Chuck Robbins: Oh, the services growth. Paul Silverstein: The services growth; what's driving it? Is it an anomaly? Is it the new norm? Chuck Robbins: Overall, obviously quite pleased with the progress on our services business. There is in Q3 though, remember there was an extra week. And so it's a lot of services, a lot of that is ratable. That extra week turns into an extra week of revenue during the quarter so there is a one-off anomaly that's driving that outsized growth in Q3. Scott Herren: Yes. And then, once you normalize that out, you should think about the same normal rates you've been seeing. Paul Silverstein: All right, I appreciate it. Thank you. Chuck Robbins: Thanks. Marilyn Mora: Next question, please? Operator: Thank you. Tim Long from Barclays, you may go ahead. Tim Long: Thank you. Two questions for me too, both on gross margins. Actually I'm just kidding. First one here. Can you just talk a little bit about kind of your visibility? So some of your peer companies and others in the industry, given what's gone on with lead times, you obviously have a revenue and a cost impact here. But what has that done to kind of how far out you can see and plan and kind of the whole backlog versus book and ship for the business for the next few quarters? And then, second, if you could just touch on the Cloud vertical. It sounded like it was pretty strong again. Could you just give us a little color of kind of what is driving that? I think there had been some campus strength with those customers, but can you talk to us a little bit about the breadth of product that's driving that? Is it a lot of 8-K, are you starting to see software and silicon starting to contribute a little bit? So any color there would be great. Thanks. Chuck Robbins: Yes, Tim. Thanks. I'll make one quick comment on the visibility thing, and then I'll let Scott comment and then I'll take the Cloud one. I would say that the thing that I will tell you is we're in the middle of Q3, I can tell you our supply chain team was a little, I guess, concerned about what they could see for the next two months at that time. And when we started building the guide and working through what we thought they could deliver and build in Q4, they had a reasonable degree of confidence. So what that says to me is they're getting better visibility. And so I think it's just going to improve from here. So that's what we've been dealing with the last couple months Scott, you want to add anything? Scott Herren: Yes. From a reported revenue standpoint, which I think is probably at least part of your question, Tim, we've got good visibility at this point, given the size of our backlog that we roll into Q4 with, as well as the amount of revenue that's now occurring that will come off the balance sheet. So you add those two together and then look at the -- we have a good feel obviously for what's in the pipeline at this point too. We have pretty good visibility at this point. Chuck Robbins: And then, on the Cloud vertical; I would say that one of the customers we have had a very strong sort of Enterprise Networking portfolio relationship with, but beyond that, all of it is really being driven by infrastructure going into their Cloud assets. And so we have sold significant amounts of 8-Ks into that infrastructure, but we have sold silicon, stand-alone as well. We have our software running on one of their pieces of hardware, and in some case, we have their software running on our switching hardware. And we're working on White Box ODM with a couple of them relative to our silicon. So, we have all the variations that we announced in December of 2019 we're actively involved in right now; and the good news is there's a lot of Systems desire as well. Tim Long: Okay, thank you. Chuck Robbins: Just as an add-on to that, last time, we talked about 400 gig, and there always seems to be a question about 400 gig. And our customer count on 400 gig went up by 50% during the quarter. So we did see a continued uptake on that technology, and that's super early, as you know. Tim Long: Great, thank you. Marilyn Mora: Next question, please? Operator: Jim Suva from Citigroup Investment Research, you may go ahead. James Suva: Thank you so much for all the details and clarification. I just had one question. Can you give us some commentary on your hyperscale traction? It appears Service Provider's bouncing back pretty strong. And for a while it seemed like the hyperscale wasn't quite as strong as you'd hoped and you were putting more efforts into it and it seems like now your commentary is quite a bit more positive. Is that some new product wins, some share gains, permanency and traction of it? But any commentary on that would be greatly appreciated. Thank you. Chuck Robbins: Yes, Jim. So we've had six consecutive quarters of very strong double-digit growth, ranging from mid-teens to triple-digits. And so that's in the Webscale vertical, and it certainly has been share gains because we didn't have any presence before. So as I've joked on calls before, it's one of the few markets where we actually have the opportunity to go gain share, and so that's been positive. We've worked hard on these relationships, and so that has expanded. We had a two-day customer briefing with one of them two weeks ago and it was, that particular briefing was all about our Enterprise portfolio. So we're seeing both sides but we are definitely seeing success that I just mentioned with Tim's question around the Cloud vertical in the Cloud infrastructure. James Suva: Thank you so much. Marilyn Mora: Thanks, Jim. And we have time for one more question. Operator: Thank you. Jeff Kvaal from Wolfe Research, you may go ahead sir. Jeff Kvaal: Thank you. It was nicely said. My question is actually on the margin side. It sounds as though you are getting better visibility on the component availability. So I guess I'm wondering should we be expecting that the margin headwind would abate through the year? And then as part of that, has anything changed in terms of what you expect to happen to the margin structure over time as we get past these constraints? Thank you. Chuck Robbins: Yes, Jeff. As we've talked about earlier, I think some of the supply chain issues we have that we're seeing certainly from a supply standpoint are going to be with us through the end of the calendar year. But there's no question we've also got some good tailwinds in the gross margin line. When you think of the amount of -- the faster growth rate of services and the ratability of that, which contributes significantly now to the revenue line, that's at a higher margin than our software business, which year-on-year grew at 13% and is now on a run-rate of about a $14 billion per year software business. That obviously comes at a higher margin too. So while we do have supply chain headwinds, we've also got some nice tailwinds that are coming in. Scott Herren: Okay. And then, the concept is that once we get past these fairly ephemeral, in the grand scheme of things, supply challenges, then we should expect the gross margins to reflect the mix shift software and drift higher. That's the right way to think about it. Jeff Kvaal: Yes. Okay, excellent. And then, I'm sorry, did you give us a number on how much you might have shipped had you not had supply chain constraints? Chuck Robbins: Yes. We talked about that in the last day or so. And it's really difficult to get a number. I'd say it'd been a point or two, I mean particularly in the guide front, I think it's a reasonable thing to think about. I mean, our guys were stressed, and in Q4, they have very little, they're committed to what they think they can build, but it's tough. It's tough right now. So you can extrapolate with the growth rate we saw on the product side and then with the corresponding guide that our backlog is certainly increasing, so if we had the capacity to ship, we would but we just don't have it. All right, let me just wrap up by first and foremost thanking all of you for spending time with us today, and, despite the predominant discussion point here, which has been around gross margins relative to the supply chain, I hope our confidence came across and that we feel really good about the portfolio. We feel really good about the reopening. We feel good about our teams, I'm really proud of what they've accomplished. Look, I'm really pleased that our customers are choosing to spend their dollars with us, as they come back. I think that's a great statement of confidence, and I think that it also proves that we are going to be critical to the rebound and the recovery and the return to office. So, thanks for being with us, and we look forward to spending time with you all. And I'm going to kick it back to Marilyn. Marilyn Mora: Thanks, Chuck. Cisco's next quarterly earnings conference call, which will reflect our fiscal 2021 fourth quarter and annual results, will be on Wednesday, August 18, 2021, at 1:30 PM Pacific Time, 4:30 PM Eastern Time. As a reminder, we will be presenting and hosting meetings at several conferences over the next few weeks. Please visit the Cisco Investor Relations website for the latest event schedule and access information. Again, I'd like to remind the audience that in light of Regulation FD, Cisco's policy is not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. We now plan to close the call. If you have any further questions, please feel free to contact the Cisco Investor Relations team, and we thank you very much for joining the call today. Operator: Thank you for participating on today's conference call. If you would like to listen to the call in it's entirety, you may call 866-461-2738. For participants dialing from outside the U.S., please dial 203-369-1354. This concludes today's call. You may disconnect at this time.
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Cisco Shares Surge on Earnings Beat and Job Cuts

Cisco Shares Surge on Earnings Beat and Job Cuts

Cisco's Strong Earnings Performance

Cisco Systems has recently seen a significant boost in its share price, driven by a strong earnings report and strategic job cuts. The company’s latest financial results exceeded expectations, contributing to a surge in its stock value.

Key Highlights from Cisco’s Earnings Report

  1. Earnings Beat Expectations: Cisco reported earnings that surpassed analyst forecasts, reflecting robust financial performance and operational efficiency. This positive surprise has fueled investor confidence and led to a notable increase in Cisco's share price.

  2. Strategic Job Cuts: In addition to the strong earnings report, Cisco announced a series of job cuts aimed at streamlining operations and improving cost efficiency. These strategic reductions are expected to enhance the company’s profitability and operational focus.

Implications for Investors

Short-Term Market Reactions

The combination of a better-than-expected earnings report and job cuts has led to a surge in Cisco’s share price. Investors are likely to respond positively to these developments, potentially leading to further gains in the short term.

Long-Term Considerations

Long-term implications of Cisco’s strong earnings and cost-cutting measures may include improved financial stability and sustained growth. Investors should monitor the company's ongoing performance and strategic initiatives to assess its future prospects.

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Conclusion

Cisco’s impressive earnings performance and strategic job cuts have driven a surge in its share price. Investors should consider these developments when evaluating Cisco’s stock and use tools like FMP’s Market Index API to stay informed and make strategic investment decisions.

Cisco Raises Annual Revenue Guidance After Strong Q3 Performance

Cisco Systems (NASDAQ:CSCO) has raised its annual revenue forecast following better-than-expected fiscal third-quarter results, where improved margins helped counter a revenue decline.

For Q3, Cisco reported adjusted earnings per diluted share of $0.98, down from $1.00 the previous year, on revenue of $12.7 billion, a 13% decrease year-over-year. Despite the revenue drop, these figures surpassed Wall Street expectations of $0.83 EPS on $12.48 billion revenue. The gross margin increased to 65.1% from 63.4% a year ago.

Looking forward, Cisco now projects its annual revenue to be between $53.6 billion and $53.8 billion, up from the previous range of $51.5 billion to $52.5 billion. The full-year adjusted EPS is expected to be between $3.69 and $3.71, slightly revised from February's forecast of $3.68 to $3.74.

Cisco Systems, Inc. Q3 Fiscal 2024 Earnings Preview

  • Cisco Systems, Inc. is set to release its third-quarter fiscal 2024 earnings on May 15, 2024, with Wall Street analysts projecting an EPS of $0.83 and revenue of $12.5 billion.
  • The company's own forecasts suggest third-quarter revenues between $12.1 billion and $12.3 billion, with non-GAAP earnings per share expected to be between 84 and 86 cents.
  • Despite a challenging macroeconomic environment, Cisco has consistently outperformed the Zacks Consensus Estimate in the trailing four quarters, boasting an average earnings surprise of 5.50%.

Cisco Systems, Inc. (NASDAQ:CSCO) is gearing up for its third-quarter fiscal 2024 earnings release on May 15, 2024, after the market closes. This event is highly anticipated by investors and analysts alike, given the company's position as a leading player in the networking and communications industry. Cisco's performance is often seen as a bellwether for the broader technology sector, making its quarterly financial results a matter of keen interest. The company faces stiff competition from other tech giants, but it has managed to maintain a strong market presence through innovation and strategic acquisitions.

Wall Street analysts have set the earnings per share (EPS) estimate at $0.83 for the quarter, with projected revenue reaching $12.5 billion. These figures are closely aligned with Cisco's own projections, which anticipate third-quarter revenues to range between $12.1 billion and $12.3 billion, with non-GAAP earnings expected to be between 84 and 86 cents per share. This forecast is set against a backdrop of challenging macroeconomic conditions and excess inventory issues within Cisco's customer base in the networking domain. The company's guidance reflects a cautious outlook, likely influenced by heightened scrutiny of deals by customers and delays in product deliveries.

Despite the challenging environment, Cisco has a track record of exceeding expectations. The company has outperformed the Zacks Consensus Estimate in all of the trailing four quarters, with an average earnings surprise of 5.50%. However, the anticipated fiscal third-quarter results are expected to reflect the impact of a cautious economic environment. This includes the potential effects of a slowdown in customer spending and logistical challenges, which could influence the company's performance.

The significance of changes in earnings estimates is crucial for investors to consider. The consensus earnings per share (EPS) estimate for Cisco has been revised downward by 1.5% over the past 30 days, indicating a reevaluation of initial projections by analysts. This adjustment, along with the projected 17% decrease in earnings per share from the same period last year and a 14.4% decline in revenue year over year, highlights the analysts' cautious stance on Cisco's upcoming financial performance.

Cisco's financial health and market valuation are also key factors for investors. The company exhibits a price-to-earnings (P/E) ratio of approximately 14.69, suggesting a moderate valuation relative to its earnings. Additionally, the price-to-sales (P/S) ratio stands at about 3.44, and the enterprise value-to-sales (EV/Sales) ratio is roughly 3.42, indicating the market's valuation of the company in relation to its sales revenue. These metrics, along with Cisco's conservative use of debt and healthy balance between assets and liabilities, provide a comprehensive view of the company's financial stability and market position ahead of its earnings announcement.

Cisco Systems Earns an Upgrade at BofA Securities

BofA Securities upgraded Cisco Systems (NASDAQ:CSCO) to Buy from Neutral, raising their price target to $60 from $55 per share. They outlined three primary growth drivers for Cisco, emphasizing the potential in Splunk, Security, and artificial intelligence to counterbalance weaknesses in networking. Analysts predict that networking will normalize, projecting growth spurred by Cisco's market share gains in Ethernet-based AI infrastructure expansions by major cloud service providers.

The bank also anticipates an acceleration in Cisco's security segment, supported by stabilization in firewall performance and recent product launches. They further noted the positive growth synergies expected from the acquisition of Splunk.

While acknowledging that Cisco may face challenges in the upcoming quarters, Bank of America believes these pressures are already accounted for in current market expectations and that Cisco's guidance remains conservatively realistic. The bank views the current setup for Cisco's stock as favorable, with improved fundamentals likely to drive growth moving forward.

Cisco Systems Announces Dividend - A Sign of Financial Strength

Cisco Systems, Inc. Announces Dividend, Signaling Strong Financial Health

On April 3, 2024, Cisco Systems, Inc. (CSCO) announced a dividend of $0.4 per share, marking a significant event for investors and shareholders. This announcement came after the company declared the dividend on February 14, 2024, setting the record date for April 3, 2024, and scheduling the payment for April 24, 2024. This move by Cisco highlights its commitment to returning value to its shareholders and underscores the company's financial health and confidence in its future prospects.

Cisco Systems, Inc. (CSCO) has been a focal point for investors, drawing significant attention as one of the most searched-for stocks on Zacks.com. This heightened interest comes in the wake of Cisco's shares experiencing a modest increase of 1.9% over the past month. Although this growth is competitive, it slightly lags behind the Zacks S&P 500 composite's growth of 2.2% and the 3.4% gain in the Zacks Computer - Networking industry. This performance sets the stage for a closer examination of Cisco's future direction, especially in light of the recent dividend announcement.

The company's financial metrics provide a deeper insight into its valuation and financial health. With a price-to-earnings (P/E) ratio of approximately 14.74 for the trailing twelve months (TTM), Cisco presents a moderate valuation relative to its earnings. The price-to-sales (P/S) ratio of about 3.46 TTM suggests that the market values each dollar of Cisco's sales at over three times, indicating a solid market valuation. Additionally, the enterprise value to sales (EV/Sales) ratio close to 3.43 TTM and the enterprise value to operating cash flow (EV/OCF) ratio of around 13.66 TTM highlight the company's efficiency in generating cash flow relative to its valuation.

Moreover, Cisco's recent product launches, including the Board Pro G2 and the Desk Phone 9800 Series, demonstrate the company's strategic focus on enhancing its position in the hybrid workplace market. These products, designed to meet the evolving needs of today's workforce, underscore Cisco's commitment to facilitating seamless collaboration in hybrid work environments. This move not only strengthens Cisco's product portfolio but also aligns with the company's growth strategy in a rapidly changing work landscape.

In conclusion, Cisco Systems, Inc. (CSCO) stands at a pivotal point, with its recent dividend announcement reflecting a strong financial position and commitment to shareholder value. The company's performance, product innovation, and financial metrics paint a comprehensive picture of its current standing and future prospects. As Cisco continues to navigate the challenges and opportunities ahead, investors and stakeholders will be keenly watching its progress and the potential impact on its stock performance.

Cisco Drops 3% on Guidance Cut

Cisco Systems (NASDAQ:CSCO) announced on Wednesday a reduction in its full-year forecast and provided weaker guidance for the current quarter, alongside revealing a restructuring plan that includes eliminating 5% of its global workforce. As a consequence, the company’s shares dropped more than 3% pre-market on Thursday.

The revised full-year outlook now anticipates adjusted earnings per share (EPS) between $3.68 and $3.74, with revenue projections between $51.5 billion and $52.5 billion. This adjustment is a downturn from previous forecasts, which expected an adjusted EPS between $3.87 and $3.93 on revenue ranging from $53.8 billion to $55.0 billion.

For fiscal Q2, Cisco reported an adjusted EPS of $0.87 on revenue of $12.8 billion, slightly above the expectations of analysts, who had predicted an EPS of $0.84 on revenue of $12.71 billion.

The company saw a 9% year-over-year decline in product revenue, which constitutes the majority of its total revenue, while service revenue experienced a 4% increase.

For the upcoming fiscal Q3, Cisco is forecasting an adjusted EPS between $0.84 and $0.86, with revenue expected to be in the range of $12.1 billion to $12.3 billion. These figures fall short of analyst expectations, which were set at an EPS of $0.91 and revenue of $13.13 billion.

Cisco Shares Plunge 11% on Annual Guidance Cut

Cisco (NASDAQ:CSCO) announced a reduction in its annual forecast on Wednesday, despite reporting fiscal first-quarter results that exceeded expectations. This adjustment comes in the wake of indications that demand for new orders of network hardware is decelerating. The company's shares experienced a significant of more than 11% intra-day today.

Despite expectations of order growth resuming in the second half of the year, the California-based firm has revised its full-year 2024 guidance. Cisco now projects adjusted earnings per share (EPS) to be between $3.87 and $3.93, with revenue forecasts ranging from $53.8 billion to $55.0 billion. This updated guidance contrasts with the previous forecast, which predicted per-share earnings of $4.01 to $4.08 and revenue between $57 billion and $58.2 billion.

The company attributes the slowdown in new product orders to customers currently prioritizing the installation and implementation of products, following a period of exceptionally strong product delivery in the past three quarters. For the first quarter, Cisco reported an adjusted EPS of $1.11 on revenue of $14.7 billion, surpassing the analysts' expectations of $1.03 in EPS and $14.62 billion in revenue.